M. Bradford Henley, MD, MBA


Published 12/1/2017
M. Bradford Henley, MD, MBA

Treasurer's Report—December 2017

Academy's total net assets increase to $112.7 million
The bylaws of the AAOS direct the finance committee to "manage, supervise, and control the financial affairs" of the organization.

As your treasurer, I serve as chair of the finance committee. Gerald R. Williams Jr, MD, immediate past president, and David A. Halsey, MD, first vice-president, are the other voting members of the committee.

Other participants in finance committee meetings include William J. Maloney, MD, AAOS president; Kristy Weber, MD, second vice-president; Thomas E. Arend Jr, Esq, CAE, chief executive officer; Dino Damalas, chief operating officer; and Tina D. Slager, director of finance. All members of the board of directors are invited to participate in all finance committee meetings either in person or via teleconference.

2016: A mixed year financially
The economy improved in 2016 and the long-term investment portfolio gained $3.7 million during the year. The operations of AAOS resulted in a net loss of $426,000.

Total net assets (basically, the net worth of our organization) increased $4.6 million, from $108.1 million at the end of 2015 to $112.7 million at the end of 2016. Net assets include Ortho Properties LLC (OPLLC), which was established to finance, construct, and operate the new headquarters building. OPLLC is a joint venture between AAOS (which owns about 70 percent) and our equity partners—the Arthroscopy Association of North American (AANA), the American Orthopaedic Society for Sports Medicine (AOSSM), the American Association of Hip and Knee Surgeons (AAHKS), and the Orthopaedic Learning Center (OLC). Liabilities decreased $1.2 million, mainly due to year-end timing issues related to the annual meeting.

Combined statement of operations
Total operating revenue for 2016 was $59.8 million, which was $300,000 less than in 2015. The reduction was mainly attributed to less revenue generated from the Annual Meeting in Orlando, Fla.

Although operating revenue was down, total operating expenses decreased by $1.1 million—from $61.4 million in 2015 to $60.2 million in 2016. Half of this decrease was due to costs savings for the annual meeting.

2016 audit
CliftonLarsonAllen, LLP, continued to serve as our outside financial auditors, and we experienced a very smooth and successful audit. Once again, the AAOS received a "clean" audit opinion that the financial statements were presented fairly in all material aspects. There were no serious concerns or management comments. It is always reassuring to get such a report from an outside auditor.

2017 projected results
The 2017 operating loss is currently projected to be $223,000 by year-end but AAOS management is working to mitigate this loss so that operations break even at year end.

In regard to investments, 2016 was a good year. Overall gains for AAOS investments in 2016 totaled $5.1 million. To date, investment gains for 2017 reached $7.2 million. Most of the funds are invested in high-performing index funds, thus achieving performance at lower fees.

In 2016, the Academy Fund, which was established in 2007 to support orthopaedic medical education and broadened in 2011 to encompass other Academy activities, was up $754,000, resulting in a year-end balance of $11.6 million. The Association Fund, which was created in 2008 to help fund our advocacy efforts and expanded in 2011 to support the Professional Compliance Program and other Association activities, gained $582,000 for the year, ending with a year-end balance of $8.7 million. Both these funds are managed by Morgan Stanley and are invested mainly in index funds.

Financial transparency
To help maintain and improve the financial transparency of the AAOS, the finance committee and staff took the following actions this year:

  • Issued the AAOS monthly financial dashboard, which provides year-to-date financial results and trends at a glance in a convenient one-page format.
  • The dashboard is available to any AAOS member upon request.
  • Held a webinar to educate new board members on various aspects of AAOS finances.
  • Made quarterly updates to the 18-month rolling forecast introduced in 2012 and designed to improve forecasting capabilities.
  • Rolling forecasting enables us to focus the budgeting processes on looking forward rather than looking back. Each update shows progress toward obtaining more reliable information in a timely manner.
  • Revised the long-term (5-year) financial plan to encompass the years 2017–2021. This plan helps the board understand the longer-term implications of today's financial decisions and helps control spending.
  • Provided key financial information not only to the board but also to the leaders of the various councils, cabinets, and committees on a regular basis to improve budget transparency. Because the financial stewardship of the AAOS rests with all volunteers and not just the board, it is important that these leaders be kept abreast of the impact of their activities as a whole. Reaction from these volunteer leaders has been very positive, and the board recognizes and greatly appreciates all of their hard work and positive contributions to the AAOS.

Fiduciary responsibilities
The AAOS Board of Directors takes its fiduciary responsibilities seriously. The board continues to lead by example and critically examines its spending at every meeting. The Board has been under budget for the last 12 years and should be under budget for this year as well.

As I complete my second year as treasurer, I want to thank you for having given me the opportunity to serve in this role. I would also like to extend my thanks to Dr. Maloney and my fellow board members who work tirelessly on behalf of all of us, especially in these challenging times.

If I can be of assistance to any fellow or member of the Academy, please contact me through the Academy offices.

M. Bradford Henley, MD, MBA, is the current treasurer of the AAOS.